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The Impact of Risk and Monitoring on CEO Compensation

49 Pages Posted: 22 Aug 2010  

Ana M. Albuquerque

Boston University Questrom School of Business

George Papadakis

Boston University

Peter D. Wysocki

Boston University Questrom School of Business

Date Written: August 20, 2010

Abstract

This paper uses a novel empirical setting to explore the association between a firm’s operational risk, managerial monitoring costs, and how managers are compensated. We investigate a sample of supplier firms that rely on a few large customers for the bulk of their revenues. We predict that supplier firms with higher customer concentration face both higher exogenous idiosyncratic risk and lower monitoring costs and, as a result, will rely less on equity-based managerial incentive compensation contracts. Our empirical results support this prediction.

Keywords: CEO, Compensation, Customers, Incentives, Monitoring, Risk, Suppliers

JEL Classification: G30, D81, M40

Suggested Citation

Albuquerque, Ana M. and Papadakis, George and Wysocki, Peter D., The Impact of Risk and Monitoring on CEO Compensation (August 20, 2010). AAA 2011 Management Accounting Section (MAS) Meeting Paper. Available at SSRN: https://ssrn.com/abstract=1662594 or http://dx.doi.org/10.2139/ssrn.1662594

Ana M. Albuquerque (Contact Author)

Boston University Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States
617-358-4185 (Phone)
617-353-6667 (Fax)

George Papadakis

Boston University ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

Peter D. Wysocki

Boston University Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

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